Sub-prime loans are loans extended by banks to customers at rates and conditions that are inferior to prime loans. These loans are given to customers, who may have a poor credit history or are in the low income bracket or are not eligible for prime loans due to other reasons.
Since the financier considers that it is riskier to lend to such groups, it wants a higher return and it charges a higher interest rate. The loans may also be accompanied by stiffer penalties and charges. Predatory loans on the other hand are different. They may be veiled under the garb of sub-prime loans, but they are offered by financiers, who are termed as loan-to-own lenders. They structure the loans with the objective to finally acquire the property. Their loans usually carry high interest rates, stiff prepayment penalties and high upfront fees, but are well devised so that they stipulate to regulations. These financiers often target older people, who eventually loose the ability to repay and forfeit the property to the lender.
Various states are now in the process to implement laws to curb such predatory practises.
